Compute the NPV for Project X and accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent.
A) $12.93
B) $14.22
C) $62.07
D) $136.90

Question

Compute the NPV for Project X and accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. 
A) $12.93 
B) $14.22 
C) $62.07 
D) $136.90

Quizplus · Accepted Answer

We can calculate the NPV of the cash flows using the formula:

NPV = CF0 + CF1/(1+r) + CF2/(1+r)2 + ... + CFn/(1+r)n

where CF0 is the initial cash flow (negative for an investment), CF1-2 are the cash flows in years 1 and 2, and r is the cost of capital (10%).

Plugging in the values, we get:

NPV = -100 + 60/(1+0.10) + 90/(1+0.10)2 + 120/(1+0.10)3 
= -100 + 54.55 + 74.38 + 85.54 
= $14.22

Since the NPV is positive, we would accept the project.

Compute the NPV for Project X and Accept or Reject